Israel, the Sino-American economic war and the EU

At the end of May 2020, a curious event occurred in the Middle East. For decades now, the region has been one of the favorite playgrounds of global superpowers. China has now started to heavily invest in the region and more particularly in Israel. However, a few weeks ago, the Israeli government decided to grant the PPP (Private-Public Partnership) about the construction and operation of the Sorek 2 water desalination plant to an Israeli company, IDE Technologies, with the participation of the Bank Leumi. However, the issue here is that it was initially a Hong-Kong based company, Hutchison, that was expected to win the bid, but pressures from the Trump administration prevented the closure of that deal. This example perfectly shows how Israel is stuck in the middle of an economic war between its greatest ally, the United States, and one of their most promising economic partner, China. And, in order to find a way out of this situation, Israel should look at a third actor: the European Union.

The existence of a trade war between the United States and China is no news. President Trump has voiced his concerns about the American trade deficit and imposed severe tariffs or bans on imported  Chinese goods. The United States is determined not to let China becoming the sole economic hegemon and puts pressure on its allies to prevent such a scenario. Washington is, now more than ever, the greatest support of Israel on a political level; the Trump administration uses this fact as leverage to compel Israel on a certain range of economic issues. On the other hand, China represents one of the greatest economic opportunities for Israel.

On top of that,  the COVID-19 pandemic worsened even more bilateral relations between the United States and China and we are now at the brink of a diplomatic crisis. If the situation escalates this way, Israel may be forced to choose between those two partners. As a Western-style democracy, it would be no surprise if Israel chooses the United States over China. However, we could wonder if by doing so, Israel may just acknowledge its status as an American proxy in the region unable to prioritize its national economic interests over the ones of its allies. The Trump administration is bringing Israel into a war that the latter does not want to do.

On the one hand, if Israel accepts American requests, it would lose in terms of economic sovereignty. On the other hand, if Israel rejects those demands, it would then alienate its greatest support. The entire challenge is now to find another way that would not provoke any of those two undesirable outcomes.

This is why the Israeli government should begin to look elsewhere to find a solution; and the  European Union may be the answer. Deepening ties with Europe may improve Israeli position in the middle of this war.

Of course on a political level, this perspective appears as quite complicated to carry out. Trump’s “Deal of the century”, praised by Nethanyahu and the annexation plan that followed displeased the European Union which is now threatening the Jewish state with sanctions . Furthermore, it is clear that if Israel wants to build deeper ties with the EU, it must first change a certain number of its policies regarding the religious establishment in particular.

However, on an economic level, a “rapprochement” with Europe seems ideal. Indeed, the European Union represents the main trade partner of Israel and is even willing to invest in Israeli technologies. For instance, Israel is the only non-European country taking part in the innovation program “Horizon 2020”; and the European Investment Bank is also investing in the Sorek2 water plant we already mentioned above. In terms of bargaining power, Israel has so much to win from this alliance as it would have a say within the European Union and will not be seen as a mere American proxy. Besides, as the EU is an ally of the United States, such a rapprochement will probably not trigger any pressures coming from Washington as it did with China.

The economic world is moving towards an organization of power divided between powerful blocks like China or the United States. Nevertheless, the European Union still holds a major role. Yes, it has suffered from the pandemic and for a few weeks, its very sense of union and solidarity was challenged over the “Coronabonds debate”. But the EU recently struck back with a stimulus plan of 1500 billion dollars, an absolute record for the organization, showing that it is still a powerful economic actor. If Israel wants to play a role in the world to come, in terms of bargaining power then it will have to integrate a block; and Europe may be the right one to choose.